U.S. tax deal jeopardizes Canadians’ privacy: Tim Harper

Legislation aimed at finding American tax evaders would give up personal information of Canadians with ties to the U.S.

OTTAWA - If one wants another clear-eyed illustration of the power imbalance between Washington and the federal Conservatives, one need look no further than a tax deal signed between the two countries last winter.

It is a deal which imperils the privacy of up to a million Canadians and creates a two-tier level of citizenship in this country, discriminating against citizens based on their ethnic origin.

It leaves this country looking like the Switzerland or the Cayman Islands, and to compound this sellout of our sovereignty, the deal is embedded in an omnibus budget bill which the Conservatives want passed in the final four-week sprint to the summer break which begins here Monday.

At issue is the American Foreign Account Tax Compliance Act (FATCA), U.S. legislation with worldwide tentacles, aimed at finding American tax evaders living in other countries.

There is no evidence that Americans are using Canada as a tax haven, socking away secret accounts to evade their Internal Revenue Service. None was asked for, none was provided before Washington demanded Canada ferret out those with ties to the U.S.

Canadian citizens who have chosen this country over their place of birth south of the border have every right to feel betrayed by their adopted country, the country to which they have pledged their loyalty.

After protracted negotiations (FATCA was introduced in 2010), Ottawa allows the long arm of Uncle Sam access to personal financial information of Canadians deemed to be “U.S. persons” in this country, something that should be alarming in an era of NSA spying and telecom information gathering for governments.

The net is wider than it would first appear.

It could include so-called border babies, Canadians whose mothers gave birth across the border for medical reasons; Canadians who have returned after holding green cards for work in the U.S.; Canadian snowbirds who could be deemed “U.S. persons” based on the length of their stay in the sun; and Canadians born to a U.S. parent who may have never set foot in the U.S.

If you are a Canadian holding a joint account with a U.S.-born spouse, your financial information, too, could be headed to the files of the IRS — and perhaps beyond.

Enter a room with any 30 Canadians and the statistics say one of them will be affected by this legislation.

Had Ottawa not complied, our financial institutions would have been slapped with a crippling 30 per cent withholding tax on financial transfers between U.S. and Canadian banks.

Under the deal, those banks can still be slapped with the sanctions if Washington deems them to be recalcitrant, although it protects the account holders from such penalties.

To get around privacy concerns, the government says, Canadian institutions will not report directly to the IRS, but instead will relay the information to the Canada Revenue Agency who will then relay it to the IRS.

Ottawa may see this two-step as a means to guard privacy. Those affected see it as double jeopardy.

Ottawa also won exemptions for a number of accounts such as RRSPs, TFSAs and disability savings plans. It also exempts small accounts.

But that only appears to mean that Ottawa will not help Washington try to find those accounts.

“Canada is getting nothing in return for its privacy giveaway, other than relief of the threatened economic sanctions,” says Arthur Cockfield, a Queen’s University law professor who recently testified before the Commons finance committee.

According to Finance Minister Joe Oliver, this was simply the best deal Canada could get. Ottawa doesn’t set U.S. legislation, he says.

“What we were confronted with was a choice,” he told a Senate committee. “Enter into an agreement with them like other countries around the world are doing or don’t. We didn’t have to, but if we didn’t, the result would have been that American citizens living in this country would have been subjected to a 30 per cent withholding tax on U.S. source payments for not complying with FATCA.”

It should have instead subjected this international agreement to proper debate regarding privacy concerns, instead of allowing it to cruise under the radar as part of an omnibus bill. The Conservatives have likely set themselves up for the courts to again ultimately decide on the constitutionality of this move.

Canadian financial institutions must begin handing over information by July 1, a Canada Day repudiation of our own sovereignty.